My father (circa 1945). He navigated B-24's (5thAF 22ndBG) in the Pacific Theater.

What happens if a knight has zero cards and the black card requires that "each knight discard one card" or "one knight discards three cards"?

This happened in a game where only three knights were left (the traitor had been revealed and the fifth knight was dead). We ruled that one of the loyal knights had to discard three cards since each knight could not discard one card. Were we right?

No.You can still opt for both options. If you choose that "each knight discards a card", then knights with zero cards simply aren't affected. However, they can't volunteer to pay the three cards (since they don't have them). Note that if all knights hold less than three cards, you are forced to choose "each knight discards a card".(Confirmed by Mr. Cathala on Dow forum.)